Hynix and STMicro to build fab in China

To be dedicated to DRAM and NAND Flash production, the new fab will be especially beneficial for Hynix’s stable DRAM production growth and for ST to build up its NAND Flash capacity. The joint venture is also a logical extension of the successful NAND Flash process/product development and manufacturing relationship between the companies. Selected for its convenience and proximity to Shanghai, Wuxi City offers a skilled labor pool and a robust infrastructure. Construction of the leading-edge fab, with a clean-room space of more than 18,000 square meters, is slated to begin early in 2005. When complete, the fab will employ approximately 1,500 people and will initially feature two manufacturing lines offering state-of-the-art technology: an 8-in. wafer line is scheduled to begin volume production in 2006 while a 12-in. wafer line will begin volume production in 2007. Each line will produce, at capacity, 20,000 wafers per month. This new fab will supplement the leading-edge capabilities of both companies while providing both with highly cost-competitive manufacturing capacity and better access to the rapidly growing Chinese market. The Chinese market is currently 14% of the worldwide semiconductor market and is expected to achieve a compound annual growth rate of more than 20% between 2003 and 2008; already, China accounts for approximately US$1.5 billion of ST’s sales. Thanks to ST’s comprehensive Flash product portfolio (including 1-Gbyte NAND Flash ICs), in particular for the Telecom market, ST’s memory sales are growing rapidly in China. A significant portion of Hynix’s sales is from China, attributable to Hynix’s strong brand power which has been built up over many years. The joint-venture will strengthen Hynix’s competitiveness as the company will be able to secure 300-mm manufacturing facilities, and resolve the existing and potential trade issues. The joint-venture also assures STMicroelectronics of access to cost-competitive DRAM products and technology that ST can use in new designs and have manufactured to suit particular customer requirements. The total investment planned for the project is US$2 billion. It will be financed with equity from both partners (Hynix 67%, ST 33%), US$250M of long-term debt from ST, as well as a financing package from Chinese local financial institutions, which will involve debt and a long leasehold. ST and Hynix are in the process of securing the required governmental approvals and financing package. In 2005, the equity investment from ST and Hynix is expected to reach around US$375 million, split on a 1/3 – 2/3 basis.